Business Stretegy

DE MONTFORT UNIVERSITY

CITY UNIVERSITY OF HONG KONG

PART-TIME

BA (HONS) BUSINESS ADMINISTRATION AND MANAGEMENT

Module Title: Strategic Management

(Module code: BAMG3116)

Individual Assignment

Physical Fitness & Beauty

Name of Instructor                :        Mr. Baniel Cheung / Mr. Danny Yip

Name of Student                        :         Ng Kwok Hung, Edmond

DMU Student No.                :         P13014983

Group No.                                :        Group 3

Date of Submission                :        16 March 2015

Total Word Count                :        2,212 words

Executive Summary

By using the marketing tools “Ansoff matrix”, we can describe the PHYSICAL’s potential strategic directions into 4 alternatives of strategic areas, market penetration, product development, market development and diversification respectively. Those are helping in determining its business whether its products are keep existing or new and whether its market should develop in existing or in new market. This paper aims to analyze the implications for PHYSICAL based on our recommended strategic in addition to consolidating of existing customers and expanding new customer base through product development.

Company Background

PHYSICAL Fitness and Beauty (“PHYSICAL”) is one of the famous fitness center in Hong Kong. It launched from 1986, and there are already 60 branches in HK, Macau and Mainland China now. Physical is continuing for expansion, evolution, and incorporation of new technology and ideas into the gym business over the years.

“By its forward-looking strategies, PHYSICAL reflects current lifestyle trends to meet the requirements of different members. In 2014, Physics is providing 1,000,000 square feet area for over 500,000 members to build a healthy and beautiful body, as a high degree of smart living.”(Physical Fitness and Beauty, 2014)

Ansoff Matrix for PHYSICAL

Under dynamic economic and political environments in Hong Kong, the company cannot do nothing to sustain its business. We can based on the Ansoff matrix to analysis the potential strategic directions for PHYSICAL. We can also refer to the Appendix – Table 1. (Ansoff, 1957)

1. Market Penetration

Since many uncertainty economic situation after the financial crisis globally, the consolidation and strengthening the PHYSICAL existing position in the market to compete the rival competitors to protect its customer’s base are both essential, as taking necessary steps to achieve these objective. These objective requires the company to take focus on tightening existing customer by the improving of service quality, underpinning of customer value, increasing of productivity with more aggressive marketing strategy in existing market. It is important for business to retain their high lifetime value customer rather than attracting new ones. (Lynch, 2003) But the company has to manage its costs downward in meaningful way and significantly, it is not easily to success due to the rental cost in Hong Kong market is upward continuously.

Under uncertainty economics situation, management should take appropriate actions to consolidate its market share:

• Cutting cost, such as lay off excess labour or supporting staff replaced by automation or review salary package for frontline saleperson. However, cutting cost in labour always involve many complicated salary calculating and leading the company being issued by Labour Union.
• Cost saving in utilities by the using of energy audit, encourage staff execute facility’s energy behavior and identify additional ways to reduce carbon footprint.
• Relocate the high rental cost store at basement into a commercial building. Only keep flagship at specific areas.
• Promotional activities, such as celebrities and advertising to maintain market presence.
• Increase customer retention efforts, such as loyalty offers and rewards during the slowly growth in new memberships under recession. (Lynch, 2003)

Market penetration means increasing market share within the existing market with current products, it would only happen after the successful completion of the consolidation phase. This will be a demanding task resulting a likely fall in demand and declining in disposable income.

1. Product Development

The development of new products, such as some spiritual or physical fitness programme or extend existing facilities to meet specific needs of the target markets. For example, boxing training, bike riding or yoga etc. On some non-productive facilities such as holistic advice and guidance service for customers. Even extending the facility such as leisure retreat lounge, stocking it with organic food and a variety of beverages. Providing Jacuzzi or a fully stocked solarium, additional services options for specific needs of customers who want to refresh tired body or with round tan body. Thus, brand loyalty exists when customers have a preference on new products through continuous advertising and rewards programme achieved by research and development. (Hill and Jones, 2007, p.46)

However, the consolidation of customer and market share must be the first priority before making any decision about the expansion of its current product or service provided.

1. Market Development

PHYSICAL involves to develop into new market, such as China and Macau with region limitation. But it is not in mature stage as the developing fitness and beauty industry is not easy to entry although the china government encouragement on free trade zone in Shanghai and the rest of key cities.

1. Diversification

PHYSICAL involves into different markets with a variety of products and services, hot classes and personal training such as Aerobics, Bollywood Dance or Yoga, tailor-made training program all potentially to attract new customers join their member scheme. Aforesaid, their market development is facing regional limitation.

Strategic Options Recommended

Perry (1987) identified product development and market development as appropriate growth strategies (Watts et al, 1998) for small and medium enterprises (SMEs). In my point of view, we would recommend the strategic directions in market penetration first and then product development in sequence, this strategic options is appropriate for PHYSICAL business growth. PHYSICAL needs to take immediate action to tighten up its competitiveness.

1. As PHYSICAL exists in Hong Kong market over many years, they have their own customers base helping the consolidation of existing market. On the other hand, according to the author, Susan (2013, online) analysis that appropriate exercises can prevent from illness and also have benefit on the part of sickness. In addition to the healthy promotions from the government, it increased the Hong Kong people to pay close attention of exercise. By the adoption of generic strategy, PHYSICAL should recognize the shift in demographics and where best chance lie. For example, the corporate client, families, elder group and the various sub-segments thereof. PHYSICAL should carry out comprehensive analysis among their competitors to establish their cope and capabilities. And then estimate the full value chain subject to the potential new entrants to avoid misallocation the resources.

1. Recent market become more competitive and saturated, the challenging from price war within these industry, not only harmful the industry structure. More and more fitness club cannot sustain their business due to price cutting.  Thus, the introduction of new fitness programme or wider range of facilities promote to specific groups instead of price cutting which can draw the public attention to PHYSICAL. Price war is a harmful tool to fight against rivalry competitors, it finally gives harmful effect on profit return. Whereas product or service development can extend the business or market segment and can retain their customers. On the other hand, the newly promotional programme and facilities or rewards scheme it can increase the brand attractiveness and draw attention from new customer to maintain competitive advantage.

1. PHYSICAL customers derive value not only from the facilities provided but also from the knowledge, know-how, and attitudes-competencies-imbedded in its people. The company needs to provide an comfort and secure working environment with both an intrinsic and extrinsic rewards to retain their tangible and intangible assets. The strengthening and development of its core competencies should be a key priority.

Evaluation by the using of Success Criteria